FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SECURITIES AND EXCHANGE 

COMMISSION,

Plaintiff,

and

EIGHTH DISTRICT ELECTRICAL

PENSION FUND; EIGHTH DISTRICT

ELECTRICAL BENEFIT FUND, No. 03-35406

Claimants-Appellants, D.C. No.  v. CV-00-01290-KI

CAPITAL CONSULTANTS, LLC;

JEFFREY L. GRAYSON; BARCLAY L.

GRAYSON,

Defendants.

THOMAS F. LENNON,

Receiver-Appellee. 

1341
SECURITIES AND EXCHANGE 

COMMISSION,

Plaintiff,

and

UNITED ASSOCIATION UNION LOCAL

290 PLUMBER, STEAMFITTER &

SHIPFITTER INDUSTRY PENSION No. 03-35407 TRUST,

Claimant-Appellant, D.C. No.  CV-00-01290-KI

v.

CAPITAL CONSULTANTS, LLC;

JEFFREY L. GRAYSON; BARCLAY L.

GRAYSON,

Defendants.

THOMAS F. LENNON,

Receiver-Appellee. 

1342 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
ELAINE L. CHAO, Secretary of the 

United States Department of

Labor,

Plaintiff-Appellant,

v. No. 03-35409

CAPITAL CONSULTANTS, LLC; D.C. No.  JEFFREY L. GRAYSON; BARCLAY L. CV-00-01291-KI

GRAYSON,

Defendants,

and

THOMAS F. LENNON,

Appellee. 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1343
SECURITIES AND EXCHANGE 

COMMISSION,

Plaintiff,

and

OREGON LABORERS-EMPLOYERS

PENSION TRUST FUND; OREGON

LABORERS-EMPLOYERS HEALTH AND

WELFARE TRUST FUND; OREGON

LABORERS-EMPLOYERS DEFINED

CONTRIBUTION TRUST FUND AND No. 03-35412

PLAN,

Claimants-Appellants, D.C. No.  CV-00-01290-GMK

v.

OPINION

CAPITAL CONSULTANTS, LLC,

Defendant-Appellee,

and

JEFFREY L. GRAYSON; BARCLAY L.

GRAYSON,

Defendants.

THOMAS F. LENNON,

Receiver-Appellee. 

Appeal from the United States District Court

for the District of Oregon

Garr M. King, District Judge, Presiding

Argued and Submitted

July 16, 2004—Portland, Oregon

Filed February 2, 2005

1344 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
Before: Thomas M. Reavley,* William A. Fletcher, and

Richard C. Tallman, Circuit Judges.

Opinion by Judge Reavley;

Partial Concurrence and Partial Dissent by

Judge W. Fletcher

*The Honorable Thomas M. Reavley, Senior United States Circuit

Judge for the Fifth Circuit, sitting by designation. 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1345
COUNSEL

Christopher T. Carson, Portland, Oregon, for claimantsappellants, Eighth District Electrical Pension Fund, et al. 

Barbee B. Lyon, Portland, Oregon, for claimant-appellant,

United Association Union Local 290 Plumber, Steamfitter &

Shipfitter Industry Pension Trust. 

Stacey E. Elias, U.S. Dept. of Labor, Washington, D.C., for

appellant, Elaine L. Chao, Secretary of Labor. 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1347
Harvey L. Rochman, Los Angeles, California, for appellants,

Oregon Laborers-Employers Pension Trust Fund, et al. 

Jeffrey R. Patterson, San Diego, California, for appellee,

Thomas F. Lennon and defendants, Capital Consultants, LLC.

OPINION

REAVLEY, Circuit Judge: 

In these consolidated appeals, beneficiaries to a receivership complain about various aspects of the receiver’s plan of

distribution. The district court approved the plan of distribution, and we affirm. 

BACKGROUND

Capital Consultants, LLC (CCL),1 was an Oregon investment management company that made investments for several

hundred individuals, corporations, and employee benefit

plans. The employee plans are retirement and other employee

benefit plans subject to the Employee Retirement Income

Security Act (ERISA).2 Under investment advisory agreements and powers of attorney, CCL generally had broad discretion to invest funds on behalf of its clients in publicly-held

securities as well as private assets such as real estate and private notes. 

The Securities and Exchange Commission (SEC) and the

United States Department of Labor (DOL) brought this suit to

1CCL previously did business as Capital Consultants, Inc. (CCI), and in

some of the agreements discussed below CCI was the signing or designated party. Hereinafter, CCL refers to CCL and CCI. 

2

29 U.S.C. §§ 1001-1461. Some of the ERISA plans were also multiemployer trust funds subject to the Labor Management Relations Act. See

29 U.S.C. § 186(c). 

1348 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
place CCL into receivership. These agencies claimed that

CCL and its principals, Jeffrey and Barclay Grayson, had

invested huge sums of client money in nearly worthless loans,

and engaged in disloyal conduct and self-dealing. The briefs

describe the CCL investments in private assets as “junk debt”

and a Ponzi scheme. 

The district court promptly placed CCL into receivership

and appointed appellee Thomas Lennon as receiver, on September 21, 2000. On this date, CCL had approximately $1 billion in client funds under management. Early in the

receivership, the receiver returned the publicly-held securities

to each client on whose behalf CCL had purchased these

securities. This action allowed the clients to see about $500

million in securities returned in relatively prompt fashion, so

that the clients could manage these assets themselves or turn

them over to new brokerage firms or investment managers.

The receiver also returned about $20 million in cash held in

clients’ custodial accounts.3 The publicly-held securities and

cash were “traced” to each CCL client. 

The assets remaining with the receiver were the bad loans

and other relatively illiquid private assets CCL had purchased

on behalf of various clients, and included private loans, private equities, and seven real estate assets. Unlike the public

securities, the private assets of the receivership were not

traced to individual clients, except that interim distributions of

certain real estate parcels were distributed to specific clients.

Clients who had invested in the real estate assets were given

the option of receiving in-kind distributions. Four properties

were distributed to clients through interim distributions. 

3The $500 million and $20 million figures are based on a receiver affidavit in the record. The receiver’s appellate briefs, however, state that as

of the date the receivership was created, “CCL reported approximately

$442 million invested in public equities and cash.” This discrepancy may

be due to timing or other reasons, but is irrelevant to our analysis. 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1349
In early 2002, the private loans and private equities were

sold as a single unit to an investment bank for $60 million.

The receiver also provided funds to the receivership corpus

through litigation and mediation of claims against CCL, its

principals, and other parties, and through the management and

servicing of private investments prior to their sale. The corpus

of the receivership also included the above-described real

estate. In an August 2002 affidavit, the receiver stated that the

receivership had marshaled assets valued at $259.5 million to

cover claims including administrative claims, one secured

claim, vendor claims, investor claims, and other claims. The

largest group of claims are those of the CCL clients, the

investor claims. According to the affidavit, the clients had

invested approximately $480 million in CCL private investments. 

Under the Second Amended Distribution Plan developed

by the receiver and approved by the district court (the distribution plan),4

 the private assets of the receivership have been

pooled and each client will receive a pro rata distribution of

these assets. The value of real estate distributed through

interim distributions to individual clients was deducted from

the pro rata distribution due to these clients. This treatment of

real estate is different from the treatment of publicly-held

securities previously distributed to clients, since the distribution of publicly-held securities did not affect the pro rata distribution of private assets. 

The distribution plan provides for dividends to clients

under a money-in-money-out or “MIMO” formula. Under this

formula, the client’s net loss is measured by the total amount

4The parties agree that the order implementing the plan of distribution

and a related order concerning individual properties at issue in these

appeals are final orders for purposes of appellate jurisdiction or are otherwise appealable. To resolve any doubts as to the appealability of these

orders, the district court also certified these orders for appeal under FED.

R. CIV. P. 54(b). 

1350 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
invested in private assets (money in) minus the total amount

returned to the client before the receivership (money out).5

Each client receives its pro rata share (computed by that client’s loss to total loss of all clients) of its net loss under this

formula. The assets of the receivership are insufficient to

cover the net losses of the CCL clients. The receiver states

that he has made two distributions under the plan, in addition

to the earlier distribution of public equities and cash and the

interim real estate distributions. 

Some clients have brought suits against third parties such

as trustees or professional advisors who made the decision to

invest client funds with CCL. Some of these claims are covered by insurance or fidelity bonds which retirement plans or

other CCL customers purchased themselves,6 while other

claims either are not covered by insurance or are covered by

malpractice or other insurance purchased by the third parties

who have been sued by the CCL clients or the DOL on behalf

of CCL clients. Some third-party suits have been settled,

some are ongoing, and some may be initiated in the future.

The total number of claims and dollar sums that have been or

5More precisely, the distribution plan provides that CCL clients shall

receive a pro rata share of the receivership’s assets “on a Money-in/

Money-out basis calculated as follows: 

The total of the cost value of the client’s Private Investment Portfolio investments as of January 1, 1996, if any, together with all

funds and non-cash assets paid by the client to CCL for the funding of any asset in the Private Investment Portfolio or the payment of Pre Receivership Management Fees from January 1,

1996 through September 21, 2000 (‘Money-in’), less all principal

paydowns, interest payments, or other payments in funds, securities or other property credited to the client’s account as a result

of its investment in the Private Investment Portfolio from January

1, 1996 through September 21, 2000 (‘Money-out’). In addition,

to the extent the client obtains or has obtained any Third Party

Recoveries, 50% of those amounts shall also be treated as

Money-out and deducted from the total Money-in.” 

6We note that ERISA requires fiduciaries and other persons handling

plan funds to be bonded. 29 U.S.C. § 1112. 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1351
might in the future be recovered via third-party claims are not

readily ascertained from the record. 

The receiver initially proposed that third-party recoveries

should reduce a client’s claim to the receivership’s private

assets on a dollar for dollar basis. After receiving objections

to this proposal, the receiver proposed a 50 percent offset,

whereby each dollar received through third-party recoveries

would reduce the distribution from the receiver by fifty cents.

This 50 percent offset provision (the offset provision) became

a part of the final distribution plan approved by the district

court. 

The appellants have filed four appeals challenging the offset provision and other aspects of the distribution plan. Appellants in No. 03-35406 are the Eighth District Electrical

Pension Fund and the Eighth District Electrical Benefit Fund

(the Electrical Funds). Appellant in No. 03-35407 is the

United Association Union Local 290 Plumber, Steamfitter &

Shipfitter Industry Pension Trust (the Plumber’s Trust).

Appellant in No. 03-35409 is the DOL. Appellants in No. 03-

35412 are the Oregon Laborers-Employers Pension Trust

Fund, the Oregon Laborers-Employers Health and Welfare

Trust Fund, and the Oregon Laborers-Employers Defined

Contribution Trust Fund (the Oregon Laborers). 

DISCUSSION

“[A] district court’s power to supervise an equity receivership and to determine the appropriate action to be taken in the

administration of the receivership is extremely broad.” SEC v.

Hardy, 803 F.2d 1034, 1037 (9th Cir. 1986). “[T]he district

court has broad powers and wide discretion to determine the

appropriate relief in an equity receivership.” SEC v. Lincoln

Thrift Ass’n, 577 F.2d 600, 606 (9th Cir. 1978). “The basis for

this broad deference to the district court’s supervisory role in

equity receiverships arises out of the fact that most receiverships involve multiple parties and complex transactions.”

1352 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
Hardy, 803 F.2d at 1037. A district court’s decision concerning the supervision of an equitable receivership is reviewed

for abuse of discretion. Commodity Futures Trading Comm’n

v. Topworth Int’l, Ltd., 205 F.3d 1107, 1115 (9th Cir. 1999).

A. The Offset Provision

All appellants except the Plumber’s Trust complain about

the offset provision. They advocate for the elimination

entirely of an offset provision for third-party recoveries. 

1. General Objections

[1] Appellants object to the offset provision based on general principles of equity and receivership. We believe that the

offset provision together with the other terms of the distribution plan represent an administratively workable and equitable

method of allocating the limited assets of the receivership.

The offset provision imposes a reasonable compromise that

balances the goal of encouraging CCL clients to seek thirdparty recoveries and rewarding them for their efforts, and the

goal of distributing the limited assets of the receivership in a

roughly equal fashion. 

These goals conflict. Eliminating the offset provision

would make for a more inequitable distribution of assets by

recognizing more loss than these appellants actually suffered.

The Ninth Circuit has noted that equity demands equal treatment of victims in a factually similar case. In United States

v. Real Property Located at 13328 and 13324 State Highway

75 North, 89 F.3d 551 (9th Cir. 1996), an investment advisor

pleaded guilty to defrauding his customers and a fund was

established to partially reimburse the customers for their

losses. The district court approved an SEC-administered plan

to distribute the fund to the defrauded customers on a pro rata

basis. One customer wanted to receive all the proceeds of a

particular real estate sale, claiming that the funds to purchase

this property could be traced to it. We held that allowing this

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1353
claim in lieu of a pro rata distribution “would frustrate equity,” and agreed with the district court that “the equities

demand that all [customers] share equally in the fund of

pooled assets in accordance with the SEC plan.” Id. at 553.

Quoting the original Ponzi scheme case, we held that “this is

a case where ‘equality is equity.’ ” Id. at 554 (quoting Cunningham v. Brown, 265 U.S. 1, 13 (1924)). 

We have also approved of offset provisions in cases involving similar equitable considerations. In our view, these cases

support the district court’s decision in the pending case,

despite some factual distinctions. In In re Cement and Concrete Antitrust Litigation, 817 F.2d 1435 (9th Cir. 1987),

rev’d on other grounds, 490 U.S. 93 (1989), we approved of

an offset provision in a antitrust class action settlement. The

class action alleged a conspiracy to fix prices for cement. The

district court approved a plan providing that amounts recovered by any class member from nonsettling defendants would

offset that class member’s share of the settlement fund. We

noted that without such an offset there would exist “the possibility that class members with claims against nonsettling

defendants could secure double recovery: collect from the settlement fund for purchases made from settling defendants,

and also collect against the nonsettling defendants under

another settlement or a judgment.” Id. at 1439. We held that

“in adopting the offset provision, the district judge forged an

equitable solution and did not abuse his discretion,” id. at

1440, and that the offset provision “in effect applies an equitable weighting to claims,” id. at 1439. 

In re Equity Funding Corp. of America Securities Litigation, 603 F.2d 1353 (9th Cir. 1979), also involved a class

action settlement fund. The suit arose out of the securities

fraud perpetrated by Equity Funding Corporation of America

(EFCA) and its related companies. EFCA filed for bankruptcy

in a separate proceeding, and the class action suit proceeded

against accountants and other defendants. The district court

approved a settlement plan under which members of the

1354 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
plaintiff classes would “ ‘share and share alike’ ” in the settlement based on their “ ‘net adjusted losses.’ ” Id. at 1357. The

plan provided for an offset which reduced the amount of the

class member’s net losses by the value of cash and stock

received under the EFCA bankruptcy reorganization plan. The

district court and the Ninth Circuit approved of the offset provision. While the offset provision was adopted in part to

address a peculiar issue concerning the appropriate recovery

of one group of class members,7 the provision was also

approved on the basis of the district court’s more general

belief “that those claimants who had participated in the reorganization proceeding had already received a varying degree

of partial recovery for those losses which formed the basis of

their claims in the securities litigation.” Id. at 1363. The district court’s approval of the plan derived in part “from the fact

that claims of the class members far exceeded the sums in the

settlement fund,” id. at 1365, a fact also present in the pending case. 

We note that Equity Funding and Cement and Concrete

involved 100 percent offset provisions, while the pending

case only involves a 50 percent offset provision. So any arguments that the offset provision in the pending case would

improperly penalize those clients who made efforts to pursue

claims in other proceedings would have applied with even

greater force in Equity Funding and Cement and Concrete, yet

we approved the 100 percent offset provisions in those cases.

The parties make no persuasive argument that some CCL

clients are less deserving of compensation under the distribution plan because they were more sophisticated than other cli7The offset provision addressed the district court’s concern that, due to

the timing of certain securities offerings, debenture holders had been

assigned a relatively high priority as compared with other fraud claimants

in the bankruptcy plan, but had claims in the class action which arguably

were weaker than the claims of other class members. Equity Funding, 603

F.2d at 1365-66. 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1355
ents, deliberately made riskier investments, have unclean

hands, or other reasons. According to the DOL, “which client

ultimately invested in which investment and who was left in

the lurch when CCL was shut down was more a product of

luck and timing than any exercise of discretion or informed

investment decision.” All the clients are innocent victims.

Eliminating the offset provision could mean a double recovery for some clients, although the parties seem to agree that

the chances of a double recovery are small at best, and the

offset provision does not eliminate all possibility of a double

recovery anyway.8 Even if no double recoveries occur, eliminating the offset provision would mean at the very least that

8The Electrical Funds claim in their brief that “[n]o ERISA plan will

obtain a double recovery, or windfall, by pursuing claims under its own

fiduciary liability insurance or bonds.” A double recovery on such claims

may not be possible if the insurance company has a right of subrogation.

However, while some clients may have recovered insurance proceeds from

their own insurance policies subject to a right of subrogation of the

insurer, the third-party claims are not limited to such claims. The Oregon

Laborers assert that a double recovery is “plainly impossible,” but we fail

to see why this is so. Indeed, for all we can tell from this record, a double

recovery is possible even with the offset provision in place, since the provision only reduces the amount of the MIMO claim by 50 percent of the

third-party recoveries. If, as appellants complain, some third-party claims

have not even been brought and tolling agreements have been formed to

circumvent the effect of the offset provision, it is impossible at this time

to conclude that no double recoveries will occur. The Electrical Funds, for

example, claim that some CCL clients have “adopted a more sensible

strategy of waiting to pursue their claims until after the Receivership

closes.” The DOL argues that “it is possible (and may well be prudent) for

CCL investors to delay asserting third-party claims until after the termination of the receivership.” The Oregon Laborers state that “[s]ome claims

. . . are subject to investigation and have yet to be litigated.” The district

court does state in its opinion and order approving of the distribution plan:

“I also acknowledge that some clients may reach a 100% recovery

between distributions from the Receiver and recoveries from third parties.

If this occurs, the Receiver is to temporarily cap that client’s distribution

until all have received a 100% recovery.” However, the court states in the

same decision that “[t]he Receiver does not propose to keep the receivership open for any additional period solely to monitor third-party claims,”

and that tolling agreements might “be used to stretch out a third-party

recovery to a point after the receivership is closed.” Therefore, the possibility of a double recovery exists, whether the result of a conscious effort

to circumvent the court’s temporary cap or the offset provision, or any

other reason that a client might obtain a third-party recovery after the termination of the receivership. 

1356 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
the partial recoveries for the losses of the innocent CCL clients would be more uneven than recoveries with the offset

provision in place. 

Appellants variously argue that the offset provision creates

a free rider problem, in that it penalizes the CCL client who

went to the expense of purchasing insurance or who successfully pursues third-party claims, and correspondingly

increases the recovery of those clients who did not purchase

insurance or who do not successfully pursue third-party

claims. They argue that the offset provision creates a disincentive to pursue third-party claims. We do not find these

arguments so compelling that we are persuaded to hold that

the district court abused its discretion in approving a distribution plan which includes the offset provision. 

First, as discussed above, the offset provision allows for

more equal compensation to innocent CCL clients, and equal

treatment is a legitimate goal in itself, even if it to some

extent conflicts with other legitimate goals. Second, clients

still have an incentive to pursue third-party claims, and are

still rewarded for their efforts, or their decision to purchase

insurance, since only half of any third-party recovery is

deducted from the client’s net loss claim. Third, to the extent

that a client incurs expenses in pursuing a third-party claim,

these expenses are offset against the amount of the third-party

recovery as measured by the receiver.9 Only the net thirdparty recovery is deducted from the receivership claim. 

9We so conclude because paragraph IV(G) of the distribution plan

makes reference to net third-party recoveries. The receiver states in his

briefing that “[a]ll attorney fees and costs incurred in obtaining the recovery are netted and 50% of that net figure is deducted from the client’s

claim in the receivership.” The district court likewise has interpreted the

offset provision as “net of costs and fees,” and the Electrical Funds also

agree in their briefing that the 50 percent offset is “net of legal expenses.”

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1357
2. ERISA Objections

Appellants argue that the offset provision violates ERISA.

They contend, and the receiver does not dispute, that as to

those receivership claimants who are ERISA plans, the

receiver is an ERISA fiduciary, defined to include a person

who, with respect to a plan, “exercises any discretionary

authority or discretionary control respecting management of

such plan or exercises any authority or control regarding management or disposition of its assets. . . .” 29 U.S.C.

§ 1002(21)(A). 

[2] Assuming without deciding that the receiver is an

ERISA fiduciary, we find nothing in the ERISA statute which

prohibits the offset provision. Appellants cite general ERISA

provisions requiring a fiduciary to act with prudence and

undivided loyalty, and stating that the fiduciary must use plan

assets for the exclusive benefit of plan beneficiaries. E.g., 29

U.S.C. §§ 1103(c)(1), 1104(a)(1)(A) & (B). They also cite a

provision prohibiting the transfer of plan benefits to persons

other than plan beneficiaries. 29 U.S.C. § 1056(d)(1) (“Each

pension plan shall provide that benefits provided under the

plan may not be assigned or alienated.”). Appellants do not

persuade us that the offset provision violates those provisions.

In this case, any distribution scheme necessarily requires

the receiver to divide up assets of the receivership which are

inadequate to cover all the net losses of all the CCL clients.

A change in the distribution formula that increases the distributions to some clients and reduces the distributions to others

does not alone imply a breach of fiduciary duty by the

receiver. By this reasoning, eliminating the offset clause

would violate ERISA since it would favor some ERISA plans

over others. 

In this context, we find unpersuasive the argument of the

Electrical Funds that the receiver violated ERISA because

“[u]nder the duty of loyalty, the inquiry is not whether the

1358 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
50% offset is fair to the CCL clients as a whole. The Receiver

must show that he has acted in the best interests of the participants and beneficiaries of each of the ERISA Plans.” This

argument ignores the limited fund aspect of this case. In a

zero sum game, favoring one fund necessarily disfavors

another. The Oregon Laborers’ argument that the receiver

never “considered what was best for any plan” ignores the

impossibility of doing what is best for every claimant to a

limited fund. Holding the receiver to a standard of undivided

loyalty to a particular client makes little sense in this context.

The ERISA statute does not require the fiduciary to achieve

the impossible; it requires that he act “with the care, skill, prudence, and diligence under the circumstances then prevailing

that a prudent man acting in a like capacity and familiar with

such matters would use in the conduct of an enterprise of a

like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B)

(emphasis added). 

To the extent appellants argue that some non-ERISA plans

would see increased distributions at the expense of ERISA

plans, they cite no authority persuading us that the receiver

was legally obligated to favor ERISA plans over non-ERISA

plans. The DOL appears to concede that no such higher duty

to ERISA clients exists.10

Further, appellants do not explain, with appropriate citation

to proof in the record, what effect the elimination of the offset

provision would have on the overall split of receivership

assets between ERISA and non-ERISA claimants. The

receiver claims that many ERISA plans are not expected to

obtain third-party recoveries. If the receiver is correct, these

ERISA plans will actually be worse off if the offset provision

is eliminated. 

10The DOL states that it “does not suggest that the receiver’s duties of

prudence and loyalty obligated him to favor the [ERISA] plans in any way

or prioritize their claims.” 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1359
The DOL argues that it is improper “to require ERISA

plans to effectively transfer 50% of recoveries that are

uniquely available to them to other CCL investors before the

plans have been made whole for their own losses.” The Electrical Funds and the Oregon Laborers similarly argue that

under ERISA and receivership law the receiver and the district court had no power or “jurisdiction” over their thirdparty claims, and that ERISA prohibits their “dominion” over

such claims. The receiver is not in our view illegally transferring from one ERISA plan to another CCL client an asset

belonging to the ERISA plan. The ERISA plan is free to pursue third-party claims as it wishes. The receiver is adjusting

the claim of the ERISA plan to the assets of the receivership,

to reflect monies received from third-party claims. Ultimately,

this argument is simply another way of arguing that the offset

rule creates a free rider problem, and we find no provision in

the ERISA statute that compels us to alter our analysis or our

conclusion that the district court did not abuse its discretion.

[3] The district court and the receiver were not attempting

to exercise “jurisdiction” over third-party actions. A judge is

allowed to reduce a judgment in his own court to reflect the

amount a plaintiff has already received from another party or

in another proceeding. See, e.g., Vesey v. United States, 626

F.2d 627, 633 (9th Cir. 1980); Layne v. United States, 460

F.2d 409, 411 (9th Cir. 1972). The court in the pending case

was simply fashioning equitable relief in its own case to allow

for a more equal distribution of limited funds to the many

innocent victims of CCL’s collapse. A somewhat similar

argument was rejected in Equity Funding, discussed above.

The district court in that class action approved an offset provision which reduced distributions to class members who had

already received assets in a separate bankruptcy proceeding.

The Ninth Circuit rejected the argument that the offset violated the “integrity” of the bankruptcy proceeding and held

that the distributions made in the bankruptcy court “were not

reduced or modified” by the class action settlement plan. 603

F.2d at 1363-64. 

1360 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
3. Collateral Source Rule

The Electrical Funds and the Oregon Laborers argue that

the offset provision violates the collateral source rule under

Oregon law. The DOL makes the same argument, citing the

Restatement (Second) of Torts § 920A(2) and comment b.

Appellants cite no authority as to why Oregon law or any

state’s common law should govern this question, and inconsistently argue that ERISA, a statute known for its complete

preemption of state law, should govern. Regardless, the collateral source rule strikes us as inapplicable to the circumstances presented. 

[4] Generally, “[u]nder the collateral source rule, the tortfeasor is not entitled to be relieved of the consequences of its

tort by some third party’s compensation to the victim.”

Ishikawa v. Delta Airlines, Inc., 343 F.3d 1129, 1134 (9th Cir.

2003). In the pending case, the alleged tortfeasors, including

CCL and the Graysons, were not relieved of the consequences

of their conduct by the offset provision. The offset provision

only affected the distribution of limited receivership funds,

obtained through litigation and other means, to the various

innocent CCL clients. “The primary justifications for the collateral source rule are that the defendant should not get a

windfall for collateral benefits received by the plaintiff and

that the defendant should not profit from benefits that the

plaintiff has paid for himself.” McLean v. Runyon, 222 F.3d

1150, 1156 (9th Cir. 2000). Again, the alleged wrongdoers

pursued by the receiver—the Graysons, CCL, and others—did

not receive a windfall from the offset provision. The offset

provision only affects how the assets recovered by the

receiver are distributed among the innocent claimants. We

similarly noted in Equity Funding that the offset rule was not

applied in that case “to benefit any joint tortfeasor. Rather, the

use of the offset was for the purpose of allocating the available settlement funds among the various claimants.” 603 F.2d

at 1364.

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1361
B. Treatment of Interim Real Estate Distributions

The Oregon Laborers and the Plumber’s Trust complain

about the way interim real estate distributions were treated by

the receiver. As discussed above, publicly-traded equities

were traced and returned to each client. The value of the public equities did not affect the distribution of pooled private

assets under the receiver’s distribution plan. Instead, each client’s claim to the pooled private assets was a pro rata share

of that client’s net loss in the private investments only. 

The receiver later allowed CCL clients to take interim distributions of real estate assets. The Oregon Laborers and six

other clients took an interim distribution of a building known

as the AT&T building, and the Plumber’s Trust took distributions of three properties known as Crimson Corners, One

Tech, and Two Tech. Unlike the public securities, the value

of an interim real estate distribution was deducted from the

client’s claim under the distribution plan, thereby reducing its

loss and pro rata share. 

1. Oregon Laborers

The Oregon Laborers complain that the receiver should not

have given different treatment to the public equities and the

real estate parcels traced and distributed to particular CCL clients via interim distributions. They argue that either (1) the

receiver should have included the public equities in the

pooled assets, presumably using a net gain or loss calculation

similar to that used for private investments; or (2) the receiver

should not have deducted the value of interim real estate distributions from clients’ claims to the receivership’s pooled

private asset fund. 

This argument is not wholly without merit. While some

CCL clients had agreements restricting investments in public

securities, these requirements were not always followed, and

in the end the mix of private and public investments for any

1362 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
particular client was a matter of chance. As the receiver concedes in his brief, “clients were frequently swapped in and out

of particular investments in order to meet funding requirements and client requests to liquidate investments. In the end,

by the time the receivership was initiated, a particular client’s

portfolio mix was, to a large degree, a result of fortuity.” 

However, we cannot agree that failing to treat the public

and private equities in an identical fashion was an abuse of

discretion. The receiver’s prompt distribution of public equities (along with cash) allowed the receiver to return a large

portion of CCL assets under management to the CCL clients

or new investment managers, rather than tying these assets up

for years in this receivership litigation. In an affidavit, the

receiver justified this treatment of public equities on “their

relatively liquid nature, volatility in price, and the lack of

competent CCL staff to manage the public equity portfolios

on a daily basis.” This justification strikes us as entirely

sound. The receiver was not in a position to actively manage

portfolios of publicly-traded securities for clients in addition

to his other difficult duties. There was no need to pool the

public equities to facilitate their liquidation. The distribution

was made promptly, before the receiver had time to conduct

litigation and mediation regarding the private assets, and otherwise attempt to marshal the private assets and the proceeds

from the management and bulk sale of these assets. As far as

we can tell from the record, no CCL client preferred that the

public equities remain under the control of the receiver or

objected to the early distribution of these assets out of the

receivership. 

[5] Looking at the treatment of interim distributions of real

estate, the receiver was entirely justified in deducting the

value of a distribution to a particular client from that client’s

claim to the remaining pooled private assets of the receivership. There is simply no sound reason to do otherwise, if the

distribution of private assets is considered by itself, without

regard to the earlier distribution of public equities. A party

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1363
should have his claim to the pooled fund reduced by the value

of the property he received, since such a distribution is a valuable dividend just like any other dividend of assets from the

receivership. 

Failing to deduct the value of the interim distribution of the

AT&T building would be particularly unfair, since the Oregon Laborers chose to take an interim distribution of that

property, which is worth more than they paid for it, but chose

to leave in the common pool of private assets two other properties which are worth less than they paid for them. In effect,

the Oregon Laborers want to keep for themselves their winner, but leave their losers in the shared pool. We agree with

the district court that this result would be inequitable. 

Our only difficulty is deciding whether, assuming that the

early distribution of public equities was warranted, the value

of the public equities should have been carried in the receiver’s books and considered when calculating the net loss of

each client, for purposes of deciding each client’s pro rata

share of the private assets pooled in the receivership. In theory, the receiver could have calculated each client’s net loss

based on client funds invested in both public and private

assets. To the extent the Oregon Laborers make this argument, we find it a close one. 

We conclude, however, that the district court did not abuse

its discretion in overruling this objection. First, requiring the

calculation of public equity gains and losses would impose a

massive new administrative burden on the receiver, one he

describes as Herculean. The receiver was not previously

required to calculate gains and losses in the public securities

because they were simply returned to individual clients or

designated agents. 

Second, there is some inconsistency in the Oregon Laborers’ position. Like other appellants, they argue that their third

party recoveries should not in effect be pooled through the

1364 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
offset provision, because these recoveries are separate assets

belonging to each CCL client, but they take issue with the

receiver’s failure to pool all the public assets held by CCL clients. Clever lawyers can no doubt explain away this apparent

inconsistency, but the truth is that all appellants (except the

DOL) make elaborate and less than compelling arguments for

redistributing the assets of the receivership in ways that will

benefit them at the expense of other CCL clients or even each

other. 

Third, the receiver points out that recalculating gains and

losses at this late stage based on a unified approach that considers the gains and losses in both public and private assets

would require some innocent clients to disgorge the value of

distributions of public equities received years ago. Such a

result strikes us as unnecessary and undesirable. 

An analogous line of authority holds, in the bankruptcy

context, that a reorganization plan should not be “undone” if

it has been substantially implemented and it would be inequitable for the court to consider the merits of an appeal due to

a “comprehensive change of circumstances.” In re Roberts

Farms, Inc., 652 F.2d 793, 798 (9th Cir. 1981). The courts

sometimes refer to this doctrine as the “equitable mootness”

doctrine. The doctrine turns in part on whether the appellant

moved for a stay in the district court. Id. The Oregon Laborers

did not move to stay the distribution of public equities.11 The

11The Oregon Laborers point out that, in seeking the early distribution

of public equities, the receiver stated to the court and to CCL clients that

he was reserving claims the receivership may have to the value of the public equities, including the right to offset their value against future distributions. Nevertheless, the Oregon Laborers did not seek a stay of the

distribution of public equities, nor do they point to any proof that they

were remotely interested in such a stay or in the pooling of public equities

at the time the receiver distributed them. The Oregon Laborers also claim

that early in the receivership the receiver even stated that he might find it

necessary to seek disgorgement of the public equities, but their record cite

is to a passage in an interim report less than two months after the receivEIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1365
doctrine also turns in part on whether the transactions at issue

are complex and would be difficult to unwind. In re

Lowenschuss, 170 F.3d 923, 933 (9th Cir. 1999). The receiver

persuades us that attempting at this stage to pool the value of

the public securities with the private assets and to recalculate

every CCL client’s net loss would be a highly complex undertaking. The ability of the receiver to require and obtain disgorgement where necessary, at a reasonable cost, is also in

question. 

Even where the appellate court does not find the equitable

mootness doctrine applicable, we have held, in a case where

we refused to order a disgorgement of fees and expenses, that

“a court may still hold that the equities weigh in favor of dismissing the appeal.” In re S.S. Retail Stores Corp., 216 F.3d

882, 885 (9th Cir. 2000). 

[6] The pending case is not a bankruptcy case that falls

squarely within the equitable mootness doctrine, but the circumstances are sufficiently analogous for us to conclude that

the district court did not abuse its discretion in rejecting the

Oregon Laborer’s request for identical treatment of public

equities and interim real estate distributions. 

er’s appointment, where he states that he “must be careful not to overpay

dividends from the liquidation of Private Investments in order to minimize

the need to seek disgorgement of funds from clients” (emphasis added).

We cannot tell whether this passage is referring to the possible need for

disgorgement of public equities or private assets to be distributed by the

receiver at a later date. Furthermore, by the time of this report, the distribution of public equities was underway, and the receiver states at the

beginning of this report, in bold print, that due to “the shortness of time,

the complexity of the matters analyzed and the need for additional information,” the report must be considered preliminary and “the Receiver may

need to materially modify its contents after further consideration.” Even

if the receiver had stated that disgorgement of public equities might be

necessary, there is no citation to the record to prove that the Oregon

Laborers sought a stay of the distribution of public equities, or refrained

from doing so based on reliance on this preliminary, cryptic comment

made after the distribution had begun. 

1366 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
2. Plumbers

Three real estate parcels known as One Tech, Two Tech,

and Crimson Corners were returned to the Plumber’s Trust

via interim distributions. The Plumber’s Trust complains that

the receiver effectively “took” or “seized” these properties

and improperly gave them to others. They argue that the properties should be excluded from the receivership estate. We

reject this argument. 

All of the assets held by CCL and later by the receiver were

held in trust for CCL’s clients. The three parcels at issue were

returned to the Plumber’s Trust. As with other interim real

estate distributions, the value of these assets were deducted

from the Plumber’s Trust’s claim to the pooled private assets

held by the receiver and distributed pro rata to CCL clients.

We endorse the fairness of this approach for the reasons discussed above. The Plumber’s Trust give no persuasive reasons that their properties were entitled to different treatment.

[7] To the extent that the Plumber’s Trust complains that

the parcels “belonged” exclusively to them, and must be

returned to them under ERISA or principles of receivership or

property law, these properties were returned to them. To the

extent that it argues that it “owned” the properties or had

“title,” “legal title,” or “sole legal title” to them, we fail to

grasp the significance of such ownership with respect to the

equitable distribution of CCL’s assets under management.

The receiver did not sell the properties and thereby divest the

Plumber’s Trust of its legal title to them. Equitable, if not

legal, title to all assets under the management and control of

CCL was held by CCL clients. This is always the case where

a fiduciary or agent manages assets for a principal. All

garden-variety stock brokerage firms, for example, hold equities in trust for their clients, and holding the stock in street

name is little more than an administrative convenience that

does not deprive the clients of equitable and legal rights in the

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1367
securities.12 By the reasoning of the Plumber’s Trust, the district court could not have ordered the pooling and pro rata distribution of public equities, because each client owns and has

title to the equities CCL purchased for that client’s account,

a position directly at odds with the position of the Oregon

Laborers, who argue that the pooling of public equities was

not only allowed but required if the receiver does not alter its

treatment of interim real estate distributions. In our view, the

pooling and pro rata distribution of public equities was neither

prohibited nor required by ERISA or general principles of

receivership or state property law. 

Whether or not legal documents identified the Plumber’s

Trust or CCL as the title holders of the properties strikes us

as irrelevant to the receiver’s task of equitably distributing the

private assets CCL invested in and controlled for the benefit

of its clients, once one accepts that the pooling of such assets

and a pro rata distribution was an appropriate method of equitably distributing the private assets. We agree with the district

court that a pooling and pro rata distribution, as opposed to

the tracing of assets, was appropriate. See Real Property, 89

F.3d at 553.13

We do not understand the Plumber’s Trust to argue that

pooling should be abandoned entirely. Indeed, the Plumber’s

12See Silber v. Mabon, 957 F.2d 697, 699 (9th Cir. 1992) (“Under common industry practice, most publicly traded stock is held in the ‘street

name’ of brokerage houses for the benefit of their customers. Only brokerage houses or other ‘record owners’ appear on official corporate transfer

records. The actual interest in the stock (and consequently, the interest in

any lawsuit relating to the stock) is that of the beneficial owner.”). 

13In Real Property, we agreed with the following “eminently sensible

statement of the law” by the district court: “ ‘[W]here, as here, the struggle

over the res derived from fraudulent conduct is between innocent parties,

tracing should not and will not apply. . . . Instead of engaging in a tracing

fiction, the equities demand that all [defrauded customers] share equally

in the fund of pooled assets in accordance with the SEC plan.’ ” 89 F.3d

at 553. 

1368 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
Trust does not object to other properties in which it has partial

ownership interests being left in the receivership for pooling

and pro rata distribution. Like the Oregon Laborers, the

Plumber’s Trust wishes to engage in cherry picking, taking

for itself those properties in which it has a gain and leaving

in the shared pool of assets the properties in which it has huge

losses. 

The only colorable argument the Plumber’s Trust appears

to make is that the three parcels at issue were never under the

control and management of CCL, and therefore did not

devolve to the receiver for distribution in any manner. Stated

another way, the Plumber’s Trust argues that the receiver’s

interim distribution of the properties was a non-event, in that

the properties were never part of the receivership estate, and

should not have been considered when calculating the Plumber’s Trust’s pro rata claim to the remaining pooled private

assets of the receivership. We reject this argument. 

The order appointing the receiver granted him “full powers

of an equity receiver, including . . . full power over all funds,

assets, collateral, premises (whether owned, leased, occupied,

or otherwise controlled), . . . and other property belonging to

or in the possession of or control of Capital Consultants.

. . .” CCL decided to place the Plumber’s Trust as an investor

in the three parcels and the properties were controlled and

managed by CCL like other assets under CCL management.

In our view, there is nothing unique about these properties

that places them outside the receivership. They were, like

other assets belonging to the Plumber’s Trust and other clients, part of a portfolio of assets managed by CCL as agent

for the benefit of the Plumber’s Trust. 

The documentation in the record, whose authenticity is not

disputed, indicates that CCL had significant if not absolute

management and control authority over the three properties.

Under investment advisory agreements between CCL and the

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1369
Plumber’s Trust, CCL had broad authority to manage and

control assets for the Plumber’s Trust.14

CCL’s authority is apparent from the management history

of the individual properties. The Crimson Corners property

was a shopping center originally built with a loan from

another CCL client. The client decided to terminate its relationship with CCL, so CCL substituted Plumber’s Trust on

this loan through a document styled an assignment of trust

deed. The borrower later defaulted on this loan and a deed in

lieu of foreclosure was prepared naming the Plumber’s Trust

as the title holder of this property. We agree with the receiver

that it was fortuitous that the default and the decision of

another client to terminate its relationship with CCL resulted

in the Plumber’s Trust being named in a deed as fee title

owner to this property. The Plumber’s Trust played no role in

selecting this property as a part of its asset portfolio. 

The One Tech and Two Tech properties were adjacent

properties conveyed to general partnerships in 1984 and 1985,

respectively. Plumber’s Trust board meeting minutes indicate

that the initial Plumber’s Trust investment in One Tech was

proposed by CCL, with a view toward keeping the assets of

14Under a 1975 Investment Advisory Agreement, CCL was granted the

authority to manage a designated portfolio of assets for the Plumber’s

Trust, and was authorized “to invest and reinvest the assets in the Portfolio

on behalf of CLIENT. ADVISER’s authority includes the power to purchase, sell and exchange property, and exercise whatever rights are conferred upon the holder of property held in the Portfolio. . . .” Attached to

this agreement and incorporated by reference was CCL’s standard form

Trading Authorization and Limited Power of Attorney, appointing CCL as

the agent and attorney in fact for the Plumber’s Trust, “with full power

and authority . . . to buy, sell, and to trade in stock, bonds and any other

securities, commodities, or other properties . . . .” A 1994 Trading Authorization and Limited Power of Attorney contains the same language. A

1987 Investment Advisory Agreement states that CCL, “in its sole discretion, shall have the unlimited right to invest and reinvest the Plan’s

assets.” 

1370 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
the trust diversified.15 The Plumber’s Trust was one of three

general partners in each of these partnerships. Funds from the

Plumber’s Trust were used to construct buildings on the One

Tech and Two Tech properties pursuant to the terms of the

partnership agreements. The partnership agreements were

signed on behalf of the Plumber’s Trust by David Nelson, a

CCL vice president. The agreements required that notices to

the Plumber’s Trust be sent to CCL and counsel for CCL,

rather than to the Plumber’s Trust or its counsel. The other

two partners withdrew from the partnerships in 1998, pursuant to agreements signed by CCL vice president Linda Lucas

on behalf of the Plumber’s Trust. In 1995, CCL recommended

that the direct management of the buildings constructed on the

One Tech and Two Tech properties “be taken in-house by

[CCL] in order to effect a cost savings to the Trust of approximately 30%.” The Plumber’s Trust agreed to this proposal. 

In 1999, CCL’s Linda Lucas, on behalf of the Plumber’s

Trust, conveyed One Tech and Two Tech to limited liability

companies in which the Plumber’s Trust was the sole member. Under Operating Agreements also signed by Lucas, CCL

was named as the sole manager of these companies, with the

“sole and exclusive right to manage the business of the Company,” including the right and power to control and manage

the properties, although it appears that the approval of the

15Minutes of an August 10, 1984 board meeting indicate that there was

a discussion of the investment earlier reported on by Mr. Grayson of CCL.

August 17, 1984 minutes state that further discussion of the investment

occurred at a board meeting held at CCL offices. “The Trustees discussed

this investment of approximately $3 million in view of ERISA and the

portfolio diversification.” Counsel for the Plumber’s Trust, Mr. Zalutsky,

“reminded the [Plumber’s Trust] Trustees that Capital Consultant’s Inc.

has the responsibility to make investment decisions for the Plan. The purpose of this meeting was merely to advise the Trustees of the investment.

Mr. Zalutsky inquired and Mr. Grayson [of CCL] confirmed that Capital

Consultants, Inc. has the sole responsibility for the investments of the

Trust . . . .” 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1371
Plumber’s Trust was required before CCL could sell the properties in their entirety.16

The Plumber’s Trust offered an affidavit from a title company officer opining that CCL lacked the authority to transfer

“insurable title” to the three properties, but the investment

advisory agreements, operating agreements, and related documents gave CCL authority to control and manage these properties at the very least. Whether a title company would be

willing to issue title insurance does not decide the question of

whether these properties were under the control and management of CCL in like manner with other private assets of CCL

clients for purposes of deciding whether to treat these properties as part of the receivership. To the extent that the Plumber’s Trust relies on its expert’s opinion to argue the extent of

CCL’s authority under the agreements between these parties,

the interpretation of these agreements and their legal effect is

16Specifically, the Operating Agreements granted CCL the exclusive

“right and power, on behalf of and in the name of the Company, to . . .

[p]urchase, take receive, lease or otherwise acquire, own, hold, improve,

use and otherwise deal in or with real or personal property or any interest

in real or personal property, wherever situated,” and to “[s]ell, convey,

mortgage, pledge, create a security interest in, lease, exchange, transfer

and otherwise dispose of all or any part of the Company property or

assets.” The agreements also provided, however, that the approval of the

Plumber’s Trust was required before CCL as manager could sell or transfer all or substantially all the assets of the company. So far as we can tell

the One Tech and Two Tech properties were the only assets of the limited

liability companies. However, the receiver contends that even though the

Operating Agreements required the Plumber’s Trust’s consent to sell the

properties, the then operative Trading Authorization and Limited Power of

Attorney, described above, gave CCL authority to give that consent as the

Plumber’s Trust’s agent and attorney in fact. We also note that while CCL

might have needed the approval of the Plumber’s Trust to sell the properties, it does not follow that the Plumber’s Trust had authority to sell the

properties, since the Operating Agreements also state that the Plumber’s

Trust, as a member of the limited liability companies who was not a manager, “shall not have any authority or power to act as agent for or on

behalf of the Company, [or] to do any act which would bind the Company

with respect to any third party . . . .” 

1372 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
an issue of law for the court. Experts may interpret and analyze factual evidence but may not testify about the law. Crow

Tribe of Indians v. Racicot, 87 F.3d 1039, 1045 (9th Cir.

1996). 

[8] With regard to the three properties, the district court

was faced with a novel and arcane dispute. “As we have recognized, case law involving district court administration of an

equity receivership . . . is sparse and is usually limited to the

facts of the particular case.” Hardy, 803 F.2d at 1037. The

district court carefully analyzed the history of the three parcels in a separate opinion. It concluded, “[b]ased on CCL’s

control of the three pieces of real property . . . that all three

should be included in the receivership estate and distribution

plan.” We agree with this conclusion. During the relevant

period the three properties were always a part of the portfolio

of assets under the management of CCL for the benefit of the

Plumber’s Trust or another client. The Plumber’s Trust offers

no legal or equitable reasons compelling us to hold that the

district court abused its discretion in allowing the receiver to

deduct from the Plumber’s Trust’s pro rata distribution claim

the value of the three parcels it had already received via

interim real estate distributions. Given that “a district court’s

power to supervise an equity receivership and to determine

the appropriate action to be taken in the administration of the

receivership is extremely broad,” Hardy, 803 F.2d at 1037,

and that “the district court has broad powers and wide discretion to determine the appropriate relief in an equity receivership,” Lincoln Thrift, 577 F.2d at 606, the district court was

not required to do otherwise. 

AFFIRMED. 

W. FLETCHER, Circuit Judge, concurring and dissenting: 

All members of the panel agree that the Receiver has done

an excellent job in this difficult and complex case, and I agree

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1373
with the majority’s opinion in all respects but one. Unlike the

majority, I would hold that the district court erred in approving the 50% offset for damages recovered by ERISA plans

from third parties. 

The United States Secretary of Labor (“the Secretary”) has

the statutory responsibility to administer ERISA. See, e.g., 29

U.S.C. §§ 1031(c) and 1135 (authority to issue regulations);

id. § 1132 (a)(2) (authority to bring civil enforcement

actions); id. § 1134 (investigative authority); id. § 1137

(administrative procedure); id. § 1138 (appropriations to carry

out “functions and duties” under ERISA). The Secretary contends that the 50% offset for third-party recoveries violates

ERISA. I agree with the Secretary. 

The Secretary was the first to file suit contending that Capital Consultants, LLC (“CCL”) had violated ERISA and seeking a receivership. After the Secretary filed suit, plan trustees

filed suit under ERISA; non-ERISA investors filed suit under

federal and state laws; and the Securities and Exchange Commission filed suit under the federal securities laws. Over the

course of several years, the Receiver marshaled the assets of

CCL, made some distributions to claimants, and recommended a final plan of distribution that was approved by the

district court. 

The parties and the district court agree that the Receiver is

a fiduciary of the ERISA plans that are claimants in the

receivership. The majority opinion merely assumes without

deciding that the Receiver is an ERISA fiduciary, Maj. Op. at

1358, but in my view the point is beyond debate. Under

ERISA, a person “is a fiduciary with respect to a plan to the

extent . . . he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or

disposition of its assets.” 29 U.S.C. § 1002(21)(A). ERISA

“defines ‘fiduciary’ not in terms of formal trusteeship, but in

functional terms of control and authority over the plan, thus

1374 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
expanding the universe of persons subject to fiduciary duties

— and to damages —” under the statute. Mertens v. Hewitt

Assocs., 508 U.S. 248, 262 (1993) (citation omitted; emphasis

in original). We construe ERISA fiduciary status “liberally,

consistent with ERISA’s policies and objectives.” Ariz. State

Carpenters Pension Trust Fund v. Citibank (Ariz.), 125 F.3d

715, 720 (9th Cir. 1997). 

As an ERISA fiduciary, the Receiver must comply with

ERISA’s fiduciary duties of loyalty. ERISA requires that 

a fiduciary shall discharge his duties with respect to

a plan solely in the interest of the participants and

beneficiaries and — 

(A) for the exclusive purpose of: 

(i) providing benefits to participants

and their beneficiaries[.] 

29 U.S.C. § 1104(a)(1) (emphasis added). ERISA fiduciary

duties are “the highest known to the law.” Howard v. Shay,

100 F.3d 1484, 1488 (9th Cir. 1996) (quoting Donovan v.

Bierwith, 680 F.2d 263, 272 n.8 (2d Cir. 1982)). As a result,

an ERISA fiduciary must have “ ‘an eye single’ toward beneficiaries’ interests.” Pegram v. Herdrich, 530 U.S. 211, 235

(2000) (quoting Donovan, 680 F.2d at 271). 

The majority holds that the Receiver acted within his discretion when he required that any claim by an ERISA plan

would be offset by 50% of any recovery from third parties by

that plan. Although the majority does not say it in so many

words, it holds that the Receiver’s fiduciary obligation under

ERISA was overridden by some general interest in fairness,

as the Receiver understood fairness, to other receivership

claimants. However, the majority points to no provision in

ERISA itself, or in the federal common law of ERISA, that

would permit such a result. 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1375
In interpreting ERISA’s fiduciary provisions, we draw on

the common law of trusts unless it is inconsistent with the

statute’s language, structure, or purposes. See Harris Trust &

Sav. Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 250

(2000); Waller v. Blue Cross of Calif., 32 F.3d 1337, 1344

(9th Cir. 1994). Trustees of ERISA plans (and, by extension,

fiduciaries occupying positions analogous to trustees) have an

obligation to preserve all assets of the plan. As the Supreme

Court wrote in Central States Pension Fund v. Central Transport, Inc., 472 U.S. 559 (1985), “One of the fundamental

common-law duties of a trustee is to preserve and maintain

trust assets[.]” Id. at 572; see also Collins v. Pension and Ins.

Comm., 144 F.3d 1279, 1283 (9th Cir. 1998) (“Plan trustees

have a general duty to ensure a plan receives all funds to

which it is entitled, so that those funds can be used on behalf

of participants and beneficiaries.”). 

In this case, a number of ERISA plans have brought successful third-party suits arising out of the CCL debacle.

Many, though not all, of those suits were brought against

ERISA plan trustees for insufficient supervision of the plans’

investments with CCL. See 29 U.S.C. § 1104(a) (setting forth

standard of care). Recoveries have come not only from the

trustees and their insurers, but also from insurance policies

purchased by the ERISA plans to cover shortfalls in recoveries from trustees. See id. § 1110(b)(1) and (b)(2) (permitting

both trustees and plans to purchase insurance for losses arising from fiduciary breach). No one disputes that, absent the

receivership, all of the third-party recoveries would be assets

of the ERISA plans. Moreover, no one disputes that the plans

paid their trustees salaries sufficient to induce them to serve

as trustees despite their liability for mismanagement, and that

many of the plans paid for additional insurance out of plan

assets. 

I accept as fully applicable to this case the equal treatment

principle of receivership law. Equality is, indeed, equity. See,

e.g., Cunningham v. Brown, 265 U.S. 1, 13 (1924) (in distrib1376 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
uting assets of estate in bankruptcy, “equality is equity”);

United States v. 13328 & 13324 State Highway 75 North, 89

F.3d 551, 553-54 (9th Cir. 1996) (disallowing tracing claim

in equity receivership when assets of all defrauded creditors

had been commingled; quoting the “equality is equity” phrase

from Cunningham). But the “equality is equity” principle

does not mean necessarily, or even usually, that all claimants

must receive equal percentage payouts on their claims. For

example, equality of treatment of secured creditors and unsecured creditors in bankruptcy does not mean that both receive

equal percentage payouts. Rather, secured creditors receive all

they are owed, up to the value of their security. Or, to take an

even more obvious example, equality of treatment in bankruptcy does not mean that claimants get more or less from the

bankruptcy estate depending on what other assets they have.

In this case, the ERISA plans are comparable to bankruptcy

creditors who have assets outside the bankruptcy estate. The

plans are claimants in the receivership, and they have assets

— in the form of recoveries from third parties — that, absent

the receivership, are their sole and undisputed property. The

right to these assets was purchased by the plans prior to and

independently of the receivership. The third-party suits, and

the resulting plan assets, effectuate Congress’s desire in

ERISA to provide special protection to participants and beneficiaries of ERISA plans. See 29 U.S.C. § 1001(b).

All investors in CCL were free to purchase insurance, or

otherwise to pay to protect themselves against malfeasance. If

they did not, that was their choice. The choice not to purchase

insurance or other protection was not irrational, for it produced an obvious potential benefit: If CCL had performed as

promised, such investors would have earned a higher rate of

return on their investment as a result of not having paid that

money. Yet the Receiver and the panel majority have

approved a distribution plan that takes away 50% of the thirdparty recoveries of the ERISA plans, for which those plans

have paid and for which other claimants have not. 

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1377
The majority’s decision is purportedly in the service of the

“equality is equity” principle. But the Receiver (and the

majority) cannot justify the offset based on that principle, for

if the Receiver really believed the principle required negating

the plans’ third-party recoveries, he would not have required

merely a 50% offset. He would have required a 100% offset.

Far from producing equality of treatment, the 50% offset

makes the inequality more obvious. The Receiver (and the

majority) are in the uncomfortable position of recognizing

that the equal treatment principle does not dictate the 50%

offset, but nonetheless requiring that the ERISA plans submit

to it. The principle now appears to be that the non-ERISA

claimants are entitled to some of the ERISA plans’ money,

but just not all of it. 

The majority makes a number of arguments in favor of the

50% offset. First, it relies on two supposedly comparable

cases in which offsets were allowed in receivership cases. In

In re Cement and Concrete Antitrust Litigation, 817 F.2d

1435 (9th Cir. 1987), rev’d on other grounds, 490 U.S. 93

(1989), purchasers of cement brought an antitrust class action

against cement manufacturers. A number of the defendants

settled and paid into a settlement fund. We allowed all claimants against the settling companies to claim against the fund,

but required those claimants who had already recovered from

non-settling defendants (who had not paid into the fund) to

offset that recovery against any claim against the fund. 

In re Equity Funding Corp. of America Securities Litigation, 603 F.2d 1353 (9th Cir. 1979), was a securities class

action arising out of the fraud perpetrated by Equity Funding.

The suit was brought by investors against accountants, rather

than against Equity Funding itself. Equity Funding filed for

bankruptcy in a separate proceeding. A distribution was made

in the bankruptcy proceeding to debenture holders and equity

owners. In the suit against the accountants, a settlement fund

was established. Distribution from the fund was made to all

claimants, but with a dollar-for-dollar offset for the debenture

1378 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
holders and equity owners based on their earlier distributions

from the bankruptcy proceeding. The debenture holders complained that the dollar-for-dollar offset was unfair to them, as

compared to the equity owners. They argued that because they

had received a much larger percentage of their claims than the

equity owners in the bankruptcy proceeding, the offset therefore had a disproportionately adverse affect on them. We sustained the dollar-for-dollar offset for both the debenture

holders and the equity owners, based in substantial part on the

rationale that the merits of the debenture holders’ claims

against the accountants were weaker than the merits of the

equity owners’ claims. Thus, the disproportionate adverse

effect of the offset on the debenture holders was fair, given

the disproportionate weakness of their claims on the merits.

Neither In re Cement nor In re Equity Funding is easily

comparable to this case. In In re Cement, claimants who had

already received compensation for the harm they had suffered

were required to take an offset when they claimed compensation from the settlement fund for that same harm. Here, by

contrast, some ERISA plans have suffered distinct and separately compensable harms arising from the acts or omissions

of plan fiduciaries. In In re Equity Funding, the debenture

holders complained only that their offset was disproportionate

to the offset for the equity owners; they did not argue that

they should be free from any offset. More important, in neither case was there a claim of fiduciary duty under ERISA or

a comparable statute. 

Second, the majority contends that not requiring an offset

for the ERISA plans’ recoveries from third parties “could

mean a double recovery for some clients.” Maj. Op. at 1356.

The majority refers to the possibility that an ERISA plan

might recover more than its actual loss if its third-party recovery is added to its distribution from the receivership without

offset. The majority’s concern is a strawman. There is no

showing on the record before us that any “double recovery”

would occur. The majority itself concedes that “the parties

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1379
seem to agree that the chances of a double recovery are small

at best.” Maj. Op. at 1356. The Eighth District Electrical Pension Fund, one of the ERISA plan plaintiffs, asserts that a

“double recovery” will not result from insurance recoveries:

“No ERISA plan will obtain a double recovery, or windfall,

by pursing claims under its own fiduciary liability insurance

or bonds. The fundamental purpose of fiduciary liability is to

make the trust whole, not provide a double recovery.” For her

part, the Secretary “does not challenge the authority of the

District Court or the receiver to structure relief to ensure that

the plans do not receive more than a full recovery.” 

Third, the majority contends that “the offset provision

allows for more equal compensation to innocent CCL victims[.]” Maj. Op. at 1357. “More equal compensation” is precisely what the offset provision does not allow, if equality

means equal treatment to equally situated parties. For example, the offset disregards the difference between ERISA plans

that purchased insurance and claimants that did not, giving

both purchasers and non-purchasers a claim to the insurance

proceeds. Under the majority’s rationale, in the case of a common catastrophe, a family whose now-deceased breadwinner

did not purchase life insurance should have a claim on the life

insurance proceeds of the family next door whose nowdeceased breadwinner did purchase such insurance. 

Fourth, the majority contends that ERISA would be violated if there were no offset provision: 

A change in the distribution formula that increases

the distributions to some clients and reduces the distributions to others does not imply a breach of fiduciary duty by the receiver. By this reasoning,

eliminating the offset clause would violate ERISA

since it would favor some ERISA plans over others.

Maj. Op. at 1358 (emphasis in original). The majority appears

to think that the Receiver’s fiduciary duty requires him to

1380 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
even out recoveries from third parties among all ERISA plans,

regardless of whether a particular ERISA plan has obtained a

third-party recovery. But this is demonstrably not true. There

are substantial variations among the ERISA plans in the

receivership. Some ERISA plans do not have any third-party

recoveries at all. These plans’ trustees may have been careful

but nonetheless duped by CCL, or these plans may have

delayed seeking any third-party recoveries. Other ERISA

plans have already recovered against their trustees. Among

those who have recovered against their trustees, some have

recovered additional amounts based on insurance policies protecting against shortfalls in compensation in suits against

trustees. 

An ERISA fiduciary, including a Receiver, may not take

assets belonging to one ERISA plan and simply distribute

those assets to another ERISA plan of which it is also a fiduciary. Far from being required to equalize distribution to all

ERISA plans, the Receiver is forbidden to equalize distributions if such equalization requires taking assets of one plan

and giving them to another. 

Fifth, the majority contends that the Secretary appears to

have conceded that the offset is proper:

To the extent appellants argue that some nonERISA plans will see increased distributions at the

expense of ERISA plans, they cite no authority persuading us that the receiver was legally obligated to

favor ERISA plans over non-ERISA plans. The DOL

[Department of Labor] appears to concede that no

such higher duty to ERISA clients exists. /FN 10/ 

— — — — 

/FN 10/ The DOL states that it “does not suggest that

the receiver’s duties of prudence and loyalty obliEIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1381
gated him to favor the [ERISA] plans in any way or

prioritize their claims.” 

Maj. Op. at 1359 (first bracket added). The majority has misread the Secretary’s brief. The paragraph from which the sentence in the majority’s footnote 10 was taken carries precisely

the opposite meaning. The Secretary first describes the duties

of an ERISA fiduciary. She then writes the following paragraph, reproduced here in its entirety: 

In this context, the Secretary does not suggest that

the receiver’s duties of prudence and loyalty obligated him to favor the plans in any way or prioritize

their claims. But she does contend that the receiver

could not, consistent with his fiduciary duties, treat

any plan unequally by disfavoring it with respect to

the other clients of CCL. Nor could the receiver

require the plans, in effect to transfer their assets to

others CCL investors, whether they are other plans

or non-plan clients. This is, in fact, what the receiver’s distribution plan does. 

(Emphasis indicates language quoted by the majority.) 

Finally, the majority contends that the 50% offset does not

actually take third-party recoveries from the ERISA plans:

“The receiver is not in our view illegally transferring from

one ERISA plan to another CCL client an asset belonging to

the ERISA plan.” Maj. Op. at 1360. Of course, the majority

is right in saying that it is not transferring ERISA plan assets

in the sense of seizing assets from a plan and conveying those

assets to another CCL client. But that is a distinction without

a difference. The offset has precisely the same consequence

as seizing 50% of a plan’s third-party recoveries, for the plan

is denied money that it would otherwise receive from the

receivership, solely because of its third-party recovery. The

Receiver’s duty of loyalty to the ERISA plans for which he

1382 EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON
is a fiduciary is a real duty, not a technicality, and cannot be

avoided by a lawyerly sleight of hand. 

I would hold that the Receiver is a fiduciary of the ERISA

plans that are claimants in the receivership; that the thirdparty recoveries are plan assets for which the ERISA plans

have paid; that the Receiver has a duty to protect those assets

on behalf of the plans; that the 50% offset effectively requires

the plans to donate half of their third-party recoveries to the

common pool of the receivership; and that the offset requirement violates ERISA. 

I recognize that many of my arguments apply to the nonERISA receivership claimants who have recovered from third

parties, and I regard it as a close question whether the

Receiver abused his discretion in providing a 50% offset as to

those third-party recoveries. However, the Receiver is not an

ERISA fiduciary as to these claimants. Because ERISA is the

determining factor in my conclusion that the offset is

improper as to the ERISA plans, I would not reverse the 50%

offset for third-party recoveries by non-ERISA claimants. I

would nevertheless remand to the district court to allow the

Receiver to determine, within his discretion, whether he

wishes to retain the 50% offset for non-ERISA claimants if

the offset is improper for ERISA claimants.

EIGHTH DISTRICT ELECTRICAL PENSION v. LENNON 1383